Dividend stocks can generally be separated into two groups.
The first group is made up of high-yield stocks. Think telecoms and utilities,
which offer higher dividend yields of 4%+. Their high yields are attractive,
but the trade-off is that they tend to have low dividend growth rates.
Sometimes, their dividend increases barely beat inflation.
The second group is made up of stocks that have lower
dividend yields, in the ~2% range, but have high dividend growth rates. These
companies typically distribute a lower percentage of their earnings today, so
that they can invest in the business to generate growth. The trade-off with
these stocks, is that they can raise their dividends 10% each year or more, in
some cases.
Investors on the hunt for high-quality dividend growth
stocks should review the list of Dividend Achievers, which have raised
dividends for 10+ years in a row. You can see the entire list of all 265 Dividend Achievers here.
Dividend growth stocks with lower yields may not appeal to
retirees, who might want more income right now, but they are well-suited for
young investors with longer time horizons. Over time, a portfolio of these stocks
can build higher dividend income streams than stocks with high current yields,
but low dividend growth rates.
This article will discuss the top 10 dividend stocks for
young investors.
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